Friday, July 29, 2011

In other news, the economy sucks

While the news seems to be focused on the debt ceiling fight, people might have missed today's GDP report, which was completely an utterly awful. Not only did GDP for the second quarter come in at an annualized rate of only 1.3%, missing expectations of 1.8%, but the previous quarter was revised much much lower, from 1.9% to 0.4%! So not only did GDP grow less than expected, it did so off a lower base.

GDP has now only grown 1.6% over the last four quarters which is pretty much the stall speed for the economy. Historically, the economy has two speeds, either it is growing at 2%+ or it's headed much lower. As you can see from the chart below, when the year over year change in GDP gets below 2%, trouble usually ensues.

So although our illustrious President said just about a month and a half ago that he was "not concerned about a double-dip recession", history suggests that he really should be. The momentum of the economy is clearly going the wrong way.

It really is shocking how completely clueless our fearless leader is about the economy. Not only does he not know that it is clearly slowing down, he has constantly been talking about raising taxes, not the best way to get people to invest their money to get the economy moving.

Also, the slowing economy will only make our budget situation worse. If you look at the Congressional Budget Office assumptions for our economy, they expect 3.1% real GDP growth in 2011 and 2.8% in 2012. Two quarters into 2011, the economy is now growing at half that rate, which means are deficits will likely be even bigger than they currently expect ($1.5 trillion in 2011 and $1.2 trillion in 2012).

Just bad news all around.

No comments:

Post a Comment